This section involves modifying Oblivion's Core Affinity, CPU Priority and/or I/O Priority. These three settings control which CPU cores Oblivion is allowed to use and the priority it has for access to CPU and Input/Output (access to hard drive and RAM) resources, respectively. Usually, you would have to change these settings to what you want every time you start the game since the Task Manager doesn't save these settings. However, there are at least two programs that can permanently apply these settings. The one I recommend is Process Lasso. Do note that Process Lasso's core engine needs to run in the background while playing Oblivion to apply any of it's below tweaks.

It is also possible to use Prio which works through the task manager. Do note that it is not possible to tweak I/O Priority using Prio though. If you intend to apply these tweaks to your game, you have to download and install Process Lasso or Prio before you proceed.

To implement any of the tweaks below, you need to have either Process Lasso or the task manager open while Oblivion is running and have Oblivion's process visible. To manipulate Oblivion's process using Prio:

Start Oblivion and wait for it to reach the main menu.

Minimize the game.

Open the task manager by either pressing Ctrl-Alt-Del or right-click on the task bar then click on Start Task manager.

Right-click on Oblivion under the Applications tab and click on Go to Process. The task manager will switch to the Processes tab with Oblivion.exe highlighted.

Do note that after you have finished working on Oblivion.exe, the game will probably crash if you try maximize it again. Your changes will still be set though.

To manipulate it using Process Lasso:

Follow steps 1 and 2 above.

Find and open ProcessLasso.exe (it will be where you installed it).

You may have to right-click on Process Lasso's icon (a green square) next to the clock on the taskbar then click on Show Process Lasso main window.

Locate Oblivion.exe in the list that appears. This might be easier if you switch to the Active Processes tab.

Right-clicking on Oblivion.exe will then allow you to tweak any of the three settings mentioned. Do note though that only Vista and Win 7 have the option of tweaking I/O Priority. Win XP users can only tweak CPU Priority and Core Affinity.

CPU Priority

Right-click on Oblivion.exe then point at Set CPU priority (Prio) or Default priority class (Process Lasso). Select the desired priority level in the sub-menu that appears. If a warning box comes up, click OK or Set Priority.

If you are using Prio, make sure the Save Priority option has a check mark next to it. If not, click on it.

I would probably recommend not changing this setting except for troubleshooting purposes. I would rather recommend that the Processor Scheduling setting be set to favour programs. This way, your foreground programs (ie. Oblivion) has a higher priority to CPU resources than background programs. The setting is set this way by default but you can check by doing the following:

Right-click on My Computer then click on Properties.

From Vista onwards, you have to click on Advanced System Settings. Win XP users can ignore this step.

In the System Properties window, click on the Advanced tab then click on the Settings... button under Performance.

In the Performance Options window, click on the Advanced tab then make sure the Processor Scheduling option is set to Programs and not Background Services.

Click on OK to exit both windows.

Again, I recommend that you don't change Oblivion's CPU priority. If Oblivion ends up utilising 100% of your CPU, it means that any other programs (including Windows processes and services) might not be able to gain the CPU access they require. In particular, if you give Oblivion the "Realtime" priority, it effectively means that no program is allowed to interfere with Oblivion's processing requirements. These two factors may effectively destabilise your PC.

I/O Priority
This might be a useful tweak. Oblivion was released before Vista was released and introduced I/O prioritisation. Additionally, Oblivion tends to require regular access to the hard drive. As mentioned earlier, the task manager (and hence Prio) can't be used to tweak this setting (you will receive an error message if you try) which means you have to use Process Lasso. Additionally, remember that only Vista onwards allow I/O prioritisation; Win XP will not have this option. Finally, it seems that Vista only uses the Normal or Very Low priority levels.

Right-click on Oblivion.exe then point at Default I/O priority.

Select the desired priority level.

If you are using Prio, make sure the Save Priority option has a check mark next to it. If not, click on it.

Try setting Oblivion.exe's priority to High and see if there is any improvement in stutter and loading pauses.

Core Affinity
This tweak involves changing the number of CPU cores that Oblivion is allowed to use. The only real use this tweak has, IMO, is if you are using a CPU that automatically overclocks itself (i.e. any CPU using either Intel Turbo Boost or AMD's Turbo Core technology) on an operating system that either doesn't support Core Parking or doesn't use it to provide maximum benefit to Turbo X CPUs (Windows XP and Vista, possibly 7 as well). The procedure is as follows:
If you are using Prio:

Right-click on Oblivion.exe then click on Set Affinity.... Select the cores Oblivion is allowed to use then click on OK.

Make sure the Save Priority option has a check mark next to it. If not, click on it.

If you are using Process Lasso:

Right-click on Oblivion.exe then point at Default CPU affinity.

After that, click on the individual cores you would like to enable or disable access to.

I would recommend giving Oblivion access to at least two cores, especially if you use Oblivion Stutter Remover and/or compressed BSAs.